Working Papers

2017-03 | September 2018

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De-leveraging or De-risking? How Banks Cope with Loss

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We explore banks' reactions to a shock arising from their exposure to the sharp oil price declines of 2014. Exposed banks tightened credit on corporate lending and on mortgages to be retained on-balance-sheet, while expanding credit for securitized mortgages. Banks therefore re-balanced their portfolio to lower their risk, rather than scaling back the size of their balance sheet or reducing lending uniformly. Thus, when assessing implications of bank stress for the broader economy, one must consider banks overall strategy, rather than focusing on isolated parts of the balance sheet.

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Article Citation

Bidder, Rhys M, John R. Krainer, and Adam H. Shapiro. 2017. "De-leveraging or De-risking? How Banks Cope with Loss," Federal Reserve Bank of San Francisco Working Paper 2017-03. Available at https://doi.org/10.24148/wp2017-03